Finance is, in its broadest sense, a branch of economics that specializes in the pursuit and management of money. Here is a brief bibliographic exploration to expand the concept.
Finance is the part of the economy that studies the specific aspects and characteristics related to business investment and the use of financial resources. (Santandreu, p.96)
According to Sabino (p.170) Finances refer to obtaining and managing, by a company or the State, the funds it needs for its operations and the criteria with which it has its assets. Finance deals, therefore, with the conditions and timing in which capital is obtained, its uses, and the payments and interests charged to money transactions. Companies usually have a direction or a management specifically dedicated to financial problems.
For Durán (p.112), finance can be defined as the area of the economy that studies the functioning of capital markets and the supply and price of financial assets. In some countries (for example, in France) the branch is identified with the field of Public Finance and other economic activities of the State. In another sense, finance could be considered as the part of the economy that studies the circulation of money between individuals, companies or different States, that is, the obtaining and management of funds. Private finance would be linked to investment, financing, benefits and dividends, while public finance would be more related to the fiscal policy of a State.
Gitman and Zuter (p.3) define finance as the art and science of managing money. On a personal level, finances affect individual decisions about how much money to spend from income, how much to save, and how to invest the savings. In the context of a business, finance involves the same kinds of decisions: how to increase investors' money, how to invest the money for a profit, and how to reinvest the earnings of the business or distribute them among investors. The keys to making good financial decisions are very similar for both companies and individuals; therefore, most students will benefit from an understanding of finance, no matter what career they plan to pursue.Knowing the techniques of good financial analysis will not only help you make better financial decisions as a consumer, but it will also help you understand the financial consequences of the important business decisions you will make regardless of your chosen career.
For their part, Bodie and Merton (p.3) define them as follows:
Finance studies the way scarce resources are allocated over time.
Two characteristics distinguish financial decisions from other resource allocation decisions: the costs and benefits of financial decisions: 1) are distributed over time, and 2) are generally not known in advance by decision makers or by no one else. For example, to make the decision to establish your own restaurant, you need to compare the costs (such as the investment to prepare the premises and the purchase of stoves, tables, chairs, small paper umbrellas for exotic drinks and other equipment that you will need) with uncertain benefits (future profits) that you expect to make for several years.
In carrying out their decisions, people rely on the financial system, which is defined as the set of markets and other institutions through which financial transactions and the exchange of assets and risks take place. The financial system includes the markets for stocks, bonds, and other financial instruments, financial intermediaries (such as banks and insurance companies), financial services companies (such as financial advisory firms), and the regulatory entities that govern these institutions. The study of the evolution of the financial system over time is an important part of the subject of finance.
The theory of finance consists of a group of concepts that help organize the way to allocate resources over time, as well as a set of quantitative models that assist in the evaluation of alternatives, decision-making and implementation from the same. The same basic concepts and quantitative models apply to all levels of decision-making, from the decision to lease a car or start a business, to the CFO of a major company to enter the telecommunications business or the World Bank on which development projects to finance.
A basic principle of finance states that the primary function of the system is to satisfy people's consumption preferences, including all the basic necessities of life, including food, clothing, and shelter. Economic organizations, such as businesses and governments, are intended to facilitate the achievement of this primary function.
Bibliography
- Bodie, Zvi and Merton, Robert C. Finance. Pearson Education, 2003 Durán Herrera, Juan José. Finance Dictionary. ECOBOOK, 2011. Gitman, Lawrence J. and Zutter, Chad J. Principles of Financial Management. Pearson Education, 2012, Sabino, Carlos. Dictionary of economics and finance. Panapo, 1991.Santandreu, Eliseu. Dictionary of financial terms. Granica Editions, 2002.
